Chapter 3.1 Benefits of Free Enterprise

I. A tradition of free enterprise II. Constitutional Protections A. The U.S. Constitution guarantees certain rights that allow people to engage in business activities. Such as: 1. Property rights a. the recognition and protection of private property rights 2. Taxation a. a limitation on the kinds of taxes that Congress can impose b. the right to make binding contracts

III. Basic principles of free enterprise A. Profit motive B. Open opportunity C. Economic rights 1. Legal equality is important to the free enterprise system. It guarantees all people the same legal rights and will maximize the use of human capital.

IV. The role of the consumer A. The most effective way for consumers to make their desires known to businesses is by the purchases they make B. Interest groups are private organization that attempts to influence public officials to act or vote in ways that will benefit the group’s members

V. The role of the government A. The role of government in a free enterprise system is to allow individuals to operate their businesses in ways they think will maximize their profits

B. Information and free enterprise 1. The government uses its powers to make sure that businesses disclose so much information to the public to make buyers more knowledgeable and safer a. Automakers are required to comply with public disclosure laws, by prominently displaying a sticker with the fuel efficiency in the car window

C. Protecting health, safety, and well-being 1. OSHA places regulations on workplace safety and information about hazards in the workplace

D. Negative effects of regulations 2. Some regulations are costly to implement and cut into profits, socompanies have to hire lobbyists to try to persuade lawmakers to reduce governmental regulation

Promoting Growth and Stability, 3.2 I. Tracking business cycles A. Gross domestic product is the term for the total value of all goods and services produced in a particular economy

The Business Cycle B. An example of the business cycle is when the economy has expanded for several years, then goes into a period of contraction.

The Business Cycle C. The difference between a business cycle and the day-to-day ups and downs of the market is that a business cycle is a major, prolonged fluctuation rather than a day-to- day movement.

II. Promoting economic strength A. To stabilize the economy, policymakers try to achieve three main outcomes high employment, steady growth, and stable prices

III. Technology and productivity A. New technology makes the economy stronger and more efficient. B. The government protects inventors and authors by offering them patents and copyrights to promote innovation

Providing Public Goods, 3.3 I. Public goods A. Public goods 1. highways 2. national parks 3. municipal libraries 4. The total benefits to society are greater than the total cost is a critical rule for determining whether something is a public good

B. Cost and benefits C. Free-rider problem 1. A free rider is a person who consumes a good or service but does not pay for it a. An example of the free-rider problem, is getting public broadcasting whether or not you contribute to their fundraising campaign

II. Market failures III. Externalities: an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume

Positive Externality A. Positive externality is an economic side effect that generates unexpected benefits

B. Negative externality 1. The noise of the airplanes is a negative externality, if a new runway has opened up at the airport, and the flight path goes directly over your apartment. C. Government goals

Providing a Safety Net, Chapter 3.4 I.The poverty problem A. Assume that the poverty threshold for a single parent with one child is $11,869 per year. 1. A single mother who works 40 hours per week and earns $5.71 an hour is above the poverty threshold

B. The government’s role C. The welfare system

II. Redistribution programs A. Cash transfers 1. Temporary Assistance for Needy Families program provide cash to the states to help run their welfare programs that: a. limit of benefits b. work incentives c. state-run welfare programs

Social Security 2. One benefit provided by Social Security is retirement income for the elderly a. Each payday, some of your pay is withheld as payroll deductions for Social Security and it is redistributed as cash transfers to elderly and disabled people.

B. In-kind benefits 1. Subsidized housing program is an in-kind benefit from the federal government. C. Medical benefits D. Education E. Faith-based initiatives